SignalPlus Macro Research Report (20231207): Macroeconomic slowdown, crypto market continues to recover

The slowdown in the U.S. economy continues, with ADP employment data weaker than expected (coupled with a sharp decline in German factory orders, -3.7% month-on-month, much lower than the expected +0.2%), investors views seem to have shifted from ideal to slower inflation It further deteriorated into a more significant economic slowdown. European yields fell by 25 to 30 basis points within 48 hours, and U.S. bond yields also fell by about 15 basis points simultaneously; the yield curve continued to have a bullish flat trend in this trend, and short-term The futures interest rate market has aggressively priced in a rate cut of 125-150 basis points by the Federal Reserve and the European Central Bank by December next year. Yesterday, several ECB officials tried to play down Schnabels shocking dovish remarks the previous day:

• ECB Kazakhstan says no interest rate cut needed in first half of 2024

• Kazimir says expectations of rate cut in first quarter of 2024 are science fiction

The sudden chill in economic momentum was evident in (Citis) U.S. Economic Surprise Index, which showed a sharp turn in the hard data segment to a six-month low, with industrials as a slowdown theme appears to begin to take hold. The commodity sector responded accordingly, with oil prices falling 4% on the day to below $70, and copper prices falling 5% in the past few days.

Along with the sharp decline in project yields, the 1-year inflation swap has also fallen sharply by 25 basis points in the past week, which is a large change of multiple standard deviations and has also fallen to the lowest level since the beginning of the year. The market seems to be fully convinced that the inflation issue has been resolved. Completely resolved, and central bankers concerns about price stickiness appear to be outdated, are the markets right? Or are you too impatient again? Only time will tell…

So why is the stock price still strong? The current narrative remains the same as the previous end-of-cycle trend, with the Feds dovish turn leading to a corresponding decline in real yields, driving SPX valuations to expand by 10% to 19x on a forward P/E basis, and the recent stock market rally has almost This is entirely due to valuation multiple expansion, rather than a significant improvement in earnings trajectory.

Furthermore, while the decline in bond yields has been driven by expectations of an economic slowdown, stocks remain fully convinced of the possibility of a desirable boom and do not believe that additional policy easing by the Fed equates to an increased risk of a recession, veteran readers Remember, this isnt the first time stocks and bonds have diverged on their respective outlooks, and stock investors are known to be almost always optimistic.

That said, historically, unwavering optimism in the stock market has typically driven prices higher around the first rate cut, with subsequent moves dependent on the path of the economy thereafter.

Furthermore, equity investors arent just talking the talk, with stock positioning and sentiment indicators remaining at very elevated levels for much of 2023.

Speaking of optimism, cryptocurrency prices continue to enjoy the recent recovery, with BTC reaching $44,000, a massive 70% rebound from the lows 2 months ago, and while there isn’t much to note in terms of specific developments, in the short term It is recommended to pay attention to whether the FOMCs potential hawkish stance constitutes a risk event, especially considering that cryptocurrency investors are already planning for further market upside, and according to Deribit data, the short-term call option to put option ratio is already quite high.

In addition, unlike the past few years, this FOMO rally failed to cause a significant rebound in mainstream interest, and there is still a lack of new retail funds entering the cryptocurrency space, according to Google Trends. This can be interpreted as a positive or negative depending on personal opinion, but Given that price levels are increasingly reversal-driven, liquidity pools have not expanded significantly, and we are approaching overbought sentiment levels across major macro asset classes, caution is advised at current price levels.

Finally, if there was any doubt about the stance of “big banks” and US regulators on cryptocurrencies, yesterday at a Senate Banking Committee meeting we saw Senator Warren (a basically anti-bank politician) meet with JPM CEO In a rare moment of shared sentiment, Jamie Dimon has both sides unabashedly criticizing cryptocurrencies and making their views on cryptocurrencies clear. It does remind us that there is still room for improvement in cryptocurrencies’ current position at the center of world power. space.

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